Monday, November 15, 2010

Crowded trade

If you've been wondering why the Australian dollar is so strong, much stronger than anyone in the media has acknowledged, then Bloomberg has a must read piece today. The quotes from bond investors are uniformly and amazingly...uniform:
“The Australian dollar is among what we’re calling the world’s new safe havens,” said Jonathan Lewis, founding principal of New York-based Samson Capital Advisors LLC, which manages $6.9 billion and specializes in bonds and currencies. The so-called Aussie “floats more freely than others,” he said. “Even free-float currencies must have an asterisk next to their names because of central bank interventions.”
... Kokusai Global Sovereign Open, Asia’s biggest bond fund, boosted its investment in Australia to a record 15 percent of assets this year. “The Australian economy is healthy,” said Masataka Horii, one of four managers for Kokusai’s $37.5 billion Global Sovereign fund in Tokyo. “The Reserve Bank of Australia will continue to hike its policy rate, and the currency will appreciate.”
... Samsung Investment Trust Management Co., South Korea’s largest private fixed-income investor, is starting a fund next year to invest in Australian debt. “Australia has one of the most aggressive central banks in the world,” said Sungjin Park, who oversees the equivalent of $55.9 billion as head of fixed income for Samsung in Seoul. “A lot of fund managers in Asia, including China and Japan, think Australian bonds are more attractive” than other sovereign debt in the region, he said.
... The Australian dollar’s advance has made it the world’s most expensive currency based on purchasing power parity, a measure of the cost of goods relative to other countries. The gauge shows the Aussie is trading at a 30 percent premium, according to data compiled by Bloomberg. “It’s very overvalued and it’s unlikely to remain that way for a substantial period,” said Lee Hardman, a foreign-exchange strategist in London at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest publicly traded bank.
... Currency gains will help Stevens cool growth, said Ken Leech, head of the global investment strategy committee for Western Asset Management Co., Legg Mason Inc.’s bond unit. “We don’t think they’re going to intervene,” Leech, who helps oversee $482.2 billion for Pasadena, California-based Western Asset, said at a Nov. 2 seminar in Singapore.
... The Australian economy is attractive enough to draw Franklin Templeton Investments, making the San Mateo, California, company the second-largest holder of the nation’s debt behind Kokusai, according to data compiled by Bloomberg. “Fundamentals remain better in Australia than the U.S. and despite the recent appreciation should allow the currency to remain strong,” said David Zahn, who helps oversee Franklin’s $664.3 billion in assets as a London-based senior money manager in the fixed-income group. “It is responsible to hike rates to keep the economy from overheating and keep inflation in check,” he said in an e-mail. “The rise in the currency does some of this for the RBA.”

New York, Tokyo, Seoul, Singapore and London. All on board with no intervention, higher interest rates, cooling growth, controlling inflation, great fundamentals and massive overvaluation with more to come. This blogger would like to sit them all down in a room and ask them some sticky questions about Australian imbalances. It would be willing to bet they have no idea. But that's global investing for you. Follow the pack.

And when it catches up to you, flee.


Septimus said...

Agreed, we really don't need a flood of hot money! It will vanish exactly when we really need it.

But how does this stack up against the Banks' claims about the cost of overseas funding? This makes it sound as if the Banks should have no problem finding money.

Or is their borrowing cost high because the sources are wary of the Banks' exposure to mortgages on overpriced housing?

David Llewellyn-Smith said...


Excellent question. And it may just be that you've exposed me a little...

It's a subject I will be posting on soon so hopefully that will cast some brighter light than today's effort...


Anonymous said...

Such an excellent blog - has made caused me to read The Australian with a far more critical eye.

fredouil said...

Exporter of services like me are not enjoying this stupid ride.the only thing we are good at is to sell house to each othe r and to dig dirt with no value added.

We even sell our farms now, like that Chinese will their food at discount.great.

Our kids are going to be so f$cked, we are selling their future at discount.

Anonymous said...

Not directly related by of interest I would think. Movie Inside Job:

Nice little piece from one of my favorite blogs Prudent Bear:


The Lorax said...

I'm going to start charging by the link. Where's my hat tip?